BPI maintaining profits in tough trading conditions

Business Correspondent/Personal Finance Editor

Wednesday 29 August 2012

BPI, Europe's leading plastic bag maker, based in Greenock, has reported a resilient half-year despite pressures on sales, continued investment, and high energy costs in the UK.

CONFIDENT: BPI's executive chairman Cameron McLatchie remains upbeat and said the company was well placed. Picture: Stewart Attwood

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SIMON BAIN

BPI reported operating profits of £14.8 million, close to last year's £15m, despite a 7% fall in sales to £273m, a weaker exchange rate for its European sales, and some contractual price cuts based on polymer costs. The gap was bridged by a reduction in finance costs from £1.3m to £1.1m.

Pension financing costs were also 20% lower at £400,000, resulting in a pre-tax profit of £13.3m, some £1.8m behind last year's result but without the benefit of £1.9m of restructuring gains. The dividend is raised by 5% to 4.2p, and the shares were up 2p at 366p. Executive chairman Cameron McLatchie said the cash generated from the strong performance had enabled a "further pleasing reduction in our borrowings" from £38.5m a year ago to £23.2m, despite an increase in capital expenditure on new plant. He added: "We plan that this increased level of capital expenditure will continue in the medium term, but nonetheless target further reductions in our borrowings, unless there are dramatic increases in our input costs."The current two key strategic investments have been in Belgium and Wales, swallowing most of last year's £7.8m and the current year's £18m capex budget, though last year saw a new agricultural line installed at Ardeer in Ayrshire, one of BPI's three Scottish plants which employ a total 300 out of the group's worldwide 2500.Operating profits in the UK and Ireland were up by 13% to £6.2m despite a reduction in sales volumes of 5.5% due to poor demand from the industrial and construction sectors. The improvement was partly due to a closure in Wales but also to the new line at Ardeer, and came against a background of "higher energy costs increasing the cost of production per tonne by 10%".Mr McLatchie admitted there had been "poorer demand from certain industrial customers and cost pressure is affecting supplies to the public sector in the UK", while the agricultural business which supplies silage wrap looked set to continue its robust performance.The group's veteran founder also gave a more upbeat assessment than usual of the price outlook for polymer, the business's key raw material, suggesting it is "much more of a buyer's market today than it was a few years ago, particularly when the buyer has a relatively stable currency".On the economic outlook, he said: "I think the construction industry isn't in great shape at all, we are seeing very patchy demand from that sector, but other areas like food and drink are going on quite happily, so there are bits of the economy that don't look very healthy."John Langlands, chief executive, said pension liabilities and energy prices were continuing issues. On the rocketing of the pension scheme deficit in the past year from £25m to £70m, he said: "You could argue it is one of the adverse effects of quantitative easing."He said the group's energy costs were "higher in the UK than other countries", adding: "There is an increasing level of environmental taxes and lots of consultations but there seems to be a lack of action in trying to develop a coherent energy policy for the UK".Mr McLatchie concluded: "As always, the second half is difficult to call at this stage, as in this manufacturing-come-service industry the order visibility is never very long-term. "We are, however, as well-placed as we were at this time last year, and we are confident that the business is capable of delivering a similar result."

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BPI maintaining profits in tough trading conditions

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